Why does Wall Street have issues with Spotify?

Spotify just can’t seem to please the right financial analysts.

This week the Swedish streamer and podcaster unveiled its Q4 and 2020 calendar figures, but Wall Street was not impressed. On the day of the announcement (February 3), its shares fell 10% in trading and closed the day down 8.2%. It lost US$5.27 billion (A$6.90 billion) of market capitalisation.

Spotify 2020 full-year revenue results:

Revenue was up 16.5% to €7.880 billion (A$12.40 billion), but operating loss deepened from -€73 million ($114.9 million) to a loss of €293 million ($461.2 million).

Spotify Q4 revenue:

Revenue rose 16.9% from €1.86 billion ($2.92 billion) to €2.168 billion ($3.41 billion).

Within Spotify Premium, however, average revenue per user was down 8% year-on-year for Q4 to €4.26 (A$6.70).

Ad-supported revenue was €281 million for the quarter, outperforming the forecast. Podcast and Ad Studio revenue both grew over 100% year-on-year.

Operating loss improved from -€77 million ($121.1 million) to -€69 million ($108.5 million).

Spotify users and subscribers

During Q4, monthly active users rose by 7.8% from 320 million to 345 million.

Subscribers grew 24% from 144 million to 155 million, adding 11 million from Q3 and up by 31 million YoY.

All regions contributed to Premium subscriber growth, led by Europe (40%) with North America (29%), Latin America (21%) and Rest of World (11%).

Free users climbed 8% from 185 million to 199 million.

Monthly active users that listened to podcasts rose from 22% to 25% in the quarter, while podcast listening doubled from Q4 2019 to Q4 2020.

Spotify’s 2021 Forecast:

Total monthly active users: 407 million to 427 million

Total premium subscribers: 172 million to 184 million

Total revenue: €9.01 billion ($14.1 billion) to €9.41 billion ($14.8 billion)

Operating loss: -€300 million ($472.2 million) to -€200 million ($314.7 million)

So why the thumbs-down from the share market? The main problem was that analysts were expecting revenue of US$2.61 billion in the quarter, and US$11.6 billion for the year.

Investors agree Spotify’s potential for long-term growth is healthy, especially with it opens in new markets (the latest being South Korea this week, without a free tier) and is strong on family plans.

But they’re impatient that growth is not coming as quickly as they planned.

Analysts as J.P. Morgan, for instance, were expecting a greater amount of new subscribers. Its figure was 187 million while Spotify’s forecast was between 172 million and 184 million.

Diving deeper into the figures, Music Business Worldwide calculated Spotify lost the equivalent of A$2.8 million every day in 2020, as it spent over €1.30 billion on sales and marketing in the year.

For the financial market, a company like Spotify also finds it difficult to make strong forecasts because of the volatile behaviour of its consumers.

Spotify CEO Daniel Ek believes the Q4 performance makes a strong start to 2021.

In an earnings call to investors and media, he said that while 2021 “will bring more uncertainty than any other year,” he remained upbeat because Spotify “exceed[ed] almost all expectations in 2020… and I believe we can do the same in 2021”.